JAMES CHIDDIX

TIME WARNER CABLE

MR. CHIDDIX:  Good afternoon. My name is Jim Chiddix. I'm  Senior
Vice_President  for Engineering and Technology at Time Warner Ca-
ble.  Time Warner Cable is the second_largest cable  operator  in
the United States.

COMMISSIONER LEHMAN:  Can I ask, are  you  headquartered  in  New
York or here?

MR. CHIDDIX:  Actually in Stamford, Connecticut.

COMMISSIONER LEHMAN:  Oh, really.

MR. CHIDDIX:  We serve more than  seven  million  subscribers  in
thirty_six  states. Our parent company, Time_Warner, is the larg-
est owner and distributor of copyrighted material in  the  world,
and  intellectual property rights are something for which we have
great respect.

Two years ago we built the first one  hundred  and  fifty_channel
cable  system  in Queens, New York, and that remains the most ad-
vanced cable system in the world today. Currently we're  building
the  country's  first  electronic superhighway, which we call the
full_service network, in Orlando, Florida, and there we'll  offer
a host of high_speed two_way interHve services including video on
demand, interactive shopping, and distance learning.  Time Warner
Cable plans to spend more than five billion dollars over the next
five years to deploy full_service networks in the majority of our
service areas across the country.

The Administration and members of Congress  have  indicated  that
building such networks is a national priority. In our experience,
however,  the  current  patent  system  is  working  against  the
development  of  an advanced communications infrastructure.  Ever
since we announced our full_service network  plans,  we  and  our
suppliers  have  received  a number of inquiries from individuals
and companies who purport to have patent rights that cover  basic
but  to  us  obvious  elements of the information superhighway as
well as traditional cable systems.

I'd like to describe for you two of these patents. The  point  is
not  whether  these  patents are valid or invalid, or whether any
particular use is infringing or not infringing, although we firm-
ly  believe that nothing weL doing infringes on any valid patent.
They do serve to illustrate the current patent system is  out  of
balance  and  that  rather than promoting the progress of science
and useful arts, that system is stifling such progress.

My first example involves the Cutler patent.  The  Cutler  patent
purports  to cover many uses of optical fiber to transmit televi-
sion signals to receivers in the home.  This patent  was  granted
in 1979 and will expire in 1996.  The use of fiber, of course, is
basic to the electronic superhighway and has also been  used  for
many  years in traditional cable systems. Indeed, Time Warner Ca-
ble has been a pioneer in the deployment  of  broad_band  optical
fiber  in  cable  systems.  The inventor of the Cutler patent did
not invent optical fiber.

Rather he merely filed a patent  for  using  fiber  to  transport
video  signals  to the home. The patent statute says that patents
are not to be granted if the subject matter as a whole would have
been  obvious at the time the invention was made to a person hav-
ing oPary skill in the art to which subject matter pertains.  I'm
not  a  lawyer, but it seems to me that the idea of using optical
fiber to transport video signals to television sets is  not  only
obvious,  but  also  inherent  in  the fiber optic medium itself,
which was conceived as an information conduit.  If such a  patent
were valid, I would think it would also have been possible to ob-
tain patents after the invention  of  television  for  using  the
medium  to  transmit  drama,  sports or news programming.  These,
however, are merely self_evident uses that are  inherent  in  the
medium  of  television,  just like video transport is inherent in
the medium of optical fiber.

My second example involves the Starside patents which purport  to
cover  a  wide  variety of features used in connection with elec-
tronic program guides. Electronic program  guides  are  on_screen
guides that provide program listings for channels that are broad-
cast or provided by a cable system.  Starside is a number of  pa-
tents,  but the features I discuss here are puTtedly covered by a
patent granted in 1987 and another that is currently pending  be-
fore the Patent Office.

Pursuant to this patented application, Starside apparently claims
and  seeks  protection for the following electronic program guide
features.   First,   the   ability   to   move   a   cursor    of
automatically_varying size about on an onscreen program guide, to
highlight a particular program on the schedule and then  press  a
button on a remote control to tune the channel on which that pro-
gram is being transmitted.  Second, the ability to combine two or
more  criteria,  such as sports and football, to obtain a listing
of the times and channels on  which  programmings  filling  those
criteria will be telecast.

Again, to me these features seem  obvious  and  inherent  in  the
technology that provides them. Daily newspapers have long provid-
ed channel listings, often using a grid format  that  shows  what
programs  are on what channel at what time.  In addition, indivi-
dual broadcast channels  and  cable  systems  have  long_telecast
on_sXn programming schedules.  When a television viewer uses such
a schedule he finds a program of interest, identifies  the  chan-
nel,  and punches the number into the remote. The Starside system
merely does this tuning process automatically through a straight-
forward  transfer of the process to a computer. Similarly, when I
want to watch football games on television,  I  simply  scan  the
program  schedule  for  such  programs.  It would be a simple but
somewhat time_consuming task to write out a  list  of  such  pro-
grams,  but  again,  preparing  lists from data based on multiple
criteria is a simple, straightforward and obvious computer appli-
cation.

Under existing law, patents for what I've just described  may  be
valid  or invalid. As I said at the beginning of my remarks, how-
ever, in either case, such patents present  impediments  to  pro-
gress.   If such patents are found to be valid, surely the patent
system has gone too far in providing protection  for  what  would
seem  obvious to a layperson, let alone to a person have ordinary
ski the art.  The result of awarding such patents at best results
in  added costs for no added value, if a license is obtained, and
at worst prevents consumers from fully realizing the benefits  of
technology if a license cannot be obtained at a reasonable price.

If such patents would ultimately be found to be invalid, however,
the  patent  system  would still not be working properly. Some of
the Starside patents are currently  being  challenged  in  court.
Business,  however, cannot come to a halt in the meantime.  Also,
litigation is costly, slow, and never free from risk.

Rather than expend time and money  on  litigation,  many  prudent
business  people will choose to avoid the problem. Indeed, one of
our suppliers of set_top boxes has informed us that  rather  than
challenge  the  Starside patents, they will instead defeature the
boxes they are making for one  of  our  cable  systems,  removing
ability of those boxes to provide some of the features that Star-
side claims are covered by its patents. This is not  an  uncommon
o`rational  decision.   This  supplier will be spending many mil-
lions of dollars to manufacture these new boxes. Even though they
believe  that  Starside  patents  are not valid, it is simply not
worth the risk and the cost of fighting them in court.  Of course
our  supplier  can  always  attempt to obtain a license for these
features, but again this would result in added cost for  what  in
our view provides no real added value.

So in our view, the present system of patent protections  is  not
optimally  promoting  innovation in the field of software_related
inventions. Rather, the current system is in some  important  in-
stances  stifling innovation, increasing costs and leading to de-
featuring rather than fostering the development of new and better
products  and  services.  However, it is not the framework of the
system that is the problem.  The statutory tests of  obviousness,
and  the person of ordinary skills standard, in themselves strike
the proper balance.

What is needed then is not a new framework for patent protectiond
software_related  inventions,  but a more rigorous application of
the present standards. For one thing, obviousness should  include
routine  applications of a given technology regardless of whether
there is prior art  showing  that  particular  application.   For
another,  any invention that merely transfers a series of routine
tasks to a computer should also be viewed as obvious.

As your Notice for these hearings states, the  computer  software
industry has evolved into a critical component of the U.S. econo-
my. Indeed, the importance of this component is  growing  greatly
every day as the computer, cable and telephone industries contin-
ue to converge.  If the United States is going to continue to  be
a  the  forefront  of  these crucial industries, it is imperative
that the patent system be restored to its proper balance so  that
it can properly foster rather than frustrate innovation.

Thank you.

COMMISSIONER  LEHMAN:   Thank  you  very   much,   Mr.   Chiddix.
Time_Warner's  certainly a company, unlike some of the other peo-
ple whhve testified, who is well_able to use  every  legal  tech-
nique  at  its  disposal to protect its rights, and does so if it
has difficulties. I'm, I __  it's  interesting  to  me  that  you
haven't  __ you have never apparently used the reexamination sys-
tem to attack some of these patents that you  disagree  with.  Is
that  because  you  did not feel the problem was in the prior art
that was examined, that it was more the legal standard  that  was
applied by the patent examiner, or is there some other reason why
you failed to use the existing examination system?

MR. CHIDDIX:  These are both very current cases, and I'm not sure
that  all avenues have been explored. The obviousness argument is
one though that even reexamination may not be fully armed to deal
with.

COMMISSIONER LEHMAN:  I take it you don't share the view of  some
of the witnesses that we should completely eliminate software pa-
tents, rather, we should tighten up on the legal standard of  pa-
tentability for software patents.

MR. CHIDDIX:  Yes. That's correct.

ClSSIONER LEHMAN:  Thank you very much. Are there any other ques-
tions?  If not, thank you very much.

Next I'd like to ask Wallace Judd, the President of Mentrix  Cor-
poration to come forward if he would please.

Is he not here?  In that case I think we'll  move  on  to  Robert
May, Ikonic Corporation. Is he here?

Okay, well, then we're __ this is why we ask people to be here at
least  twenty  minutes ahead of time, the scheduled time, because
we can see what happens.

The next person on my list is  Pete  Antoniak  of  Solar  Systems
Software. He's not here?  Mr. Antoniak is not here?  Is Professor
Hollaar here?  Good.  Since you had to  come  all  the  way  from
Utah, you're __

MR. HOLLAAR:  Early.

COMMISSIONER LEHMAN:  You're early. So  you'd  help  us  out  and
maybe  some  of  these  other people will arrive.  Thank you very
much, Professor, for joining us.

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